PREPAID CUSTOMER SEGMENTATION IN …

1 PREPAID CUSTOMER SEGMENTATION IN TELECOMMUNICATIONSAN OVERVIEW OF COMMON PRACTICEST here are number of frustrating factors for marketers who work with PREPAID customers in telecommunications. This white paper summarizes the pros and cons of common SEGMENTATION strategies in PREPAID all know the common marketing maxim that one must know one s customers very well . This is easier said than done in telecommunications for the obvious reason that when the number of customers goes beyond several hundred, marketers are forced to deal with imperfect summaries of the real world in the form of charts, data tables and averages.

2 There are many questions marketers ask about SEGMENTATION : Do I really need to segment my CUSTOMER base? How many segments? If I already track my base by rate plan, handset, tenure, etc. is this a good way to segment? How does SEGMENTATION work together with predictive analytics and propensity models?A PREPAID CUSTOMER at a telecommunications company is often anonymous. Despite attempts to add descriptive properties to them (for example, by encouraging self-registration online), the majority of the customers usually stay anonymous or provide very little identifying , it s hard for marketers working with PREPAID customers to find easily understandable CUSTOMER segments like women aged between 24 and 36, living in a city with higher than average income, 2 kids and full family.

3 The only way to obtain such information is to periodically conduct CUSTOMER surveys and extrapolate from that. INTRODUCTIONC opyright 2013 Exacaster. All rights a consequence, telecommunications companies often build their PREPAID SEGMENTATION around actual CUSTOMER behaviour as observed via their networks and systems. In general, SEGMENTATION can be best understood as a summarized description of a large number of customers that zooms in on only a few aspects that enable action, and commonly serves one of 5 key purposes: Let s discuss each of these in turn, as they are usually addressed by different SEGMENTATION techniques that are UNDERSTAND CUSTOMER NEEDS AND BEHAVIOURSuch SEGMENTATION shows if there are any distinct groupings ofcustomers that might be better addressed with differentiated products, services or PRIORITIZE ALLOCATION OF SCARCE MARKETINGRESOURCESThis one focuses activities (acquisition, up-sell or retention)

4 On specific CUSTOMER groups that generate the most revenue, margin or SEGMENT FOR TACTICAL PURPOSESS egmenting by recency frequency monetary and modifications thereof - a classical approach originating in retail - focuses on CUSTOMER behaviour that is directlylinked to TRACK THE CHANGES IN THE CUSTOMER BASEThis approach monitors the CUSTOMER base composition over NUDGE PREDICTIVE MODELS INTO FOCUSING ON DESIRED CUSTOMER GROUPSP ropensity models are great at finding customers with a specific behavioural patterns, but their focus can be made sharper by segmenting the CUSTOMER base before 2013 Exacaster.

5 All rights SEGMENTING TO UNDERSTAND THE CUSTOMER BASE COMPOSITIONThe biggest challenge in this approach is deciding how to identify CUSTOMER needs. You may use surveys, industry research, focus groups but all of these approaches try to extrapolate too many conclusions from a small amount of data. One of the most interesting techniques that help to understand the true composition of the CUSTOMER base is to start with mathematical clustering of CUSTOMER base by its behaviour. This SEGMENTATION approach grounds the needs-based SEGMENTATION in a firm foundation, because it has no assumptions beyond the data that is available about the customers and their actual behaviour.

6 When using this technique in PREPAID , cluster the base using the metrics that are easy to interpret and clearly describe CUSTOMER behaviour. As an example:number of outgoing calls, number of incoming calls, number of outgoing text messages, number of incoming text messages, number of data sessions, number of megabytes downloaded, number of outgoing international clustering algorithms will suggest many ways to cluster customers based on this usage information. There may be 5, 15 or 25 different clusters even when starting with a few simple input metrics.

7 It s best to start working with a small number of groups, it is recommended to start with 5 instead of 25 group until you understand each group very well. Each group should be interpreted by looking at its other characteristics such as the revenue, lifetime or rate plans. At this point you may consider running surveys on a sample of each group to gain further insight into their existing needs, how well you are meeting them and the potential for growth. When trying to understand CUSTOMER base composition, we are essentially starting from the CUSTOMER perspective.

8 We are looking at their needs and displayed behaviours. This is the foundation of the needs-based SEGMENTATION approach. Copyright 2013 Exacaster. All rights the example provided in Chart , 5 clusters named 1, 2, 3, 4 & 5 display markedly different usage profiles and each is distinguished in terms of relative revenue and size. Group #1 accounts for 54% of revenue and is a below-average data user let s call them the Classical VIP customers group . Group #5 generates almost no revenues, while using very little they can be called The Passives.

9 Group #3 is an exceptionally heavy data user, accounting for 57% of all data traffic and just 2% of all CUSTOMER base we can call these the Data hogs . Group #4 & Group #2 are not entirely distinctive and merit further need based SEGMENTATION described above creates a pragmatic way to differentiate in a highly competitive market by looking at each group and creating Unique Selling Propositions for each cluster. Advanced ways to generate and explore these groups of customers are now available in Big Data Telco Analytics with solutions such as Exacaster.

10 There are many more possibilities created by adding distinct device/handset profiles mobility metrics, geographical and product purchase histories. As the main purpose of such SEGMENTATION is to understand the customers and their behaviour, the SEGMENTATION can be used to guide rate plan design, communication and search for propositions that serve each group better. While such SEGMENTATION can be used to guide business strategy execution, there s a special SEGMENTATION approach designed to do just that: segmenting to prioritize resource allocation. Cluster analysis reveals a number of groups with sharply different usage profiles and suggests what the true services basket in each group is.